Inflation in UK set to fall 'quite rapidly' in 2023
2022-12-02
Inflation in UK set to fall 'quite rapidly' in 2023
Central bankers on both sides of the Atlantic raised hopes the battle against inflation is being won – but warned it was far from over.
Bank of England chief economist Huw Pill said inflation was set to fall 'quite rapidly' in the UK next year as gas prices ease.
And US Federal Reserve chairman Jerome Powell said the central bank could 'moderate the pace' of interest rate rises as soon as this month.
The comments came as EU figures showed inflation in the eurozone dropped from 10.6 per cent in October to 10 per cent in November – a welcome sign that the worst of the cost of living squeeze may be starting to ease.
Central bankers around the world have been aggressively raising interest rates to fight rampant inflation.
In the UK, rates have risen from 0.1 per cent to 3 per cent since last December, and are set to rise again before Christmas. But despite the sharp increase in the cost of borrowing, inflation is at a 41-year high of 11.1 per cent.
Work out how much your mortgage costs could rise by with our interest rate rise calculator.
While Pill raised hopes that inflation will finally start to fall next year, he said the Bank was 'vigilant' against domestic pressures that could conspire to keep it going. 'We have to be on our guard,' he said.
Powell gave his strongest signal yet that the Fed could ease off. 'The time for moderating the pace of rate increases may come as soon as the December meeting,' he added.
Yet Powell also reiterated the determination to press on with hikes 'until the job is done'.
With fears mounting that the UK economy is heading into recession, UK business leaders are the gloomiest they have been about the country's prospects than at any time since the height of the pandemic, according to a new poll by the Institute of Directors.
Yet the hope of the Bank of England is that by next year gas prices will stabilise 'and then slowly begin to come off,' said Pill.
'We are expecting to see headline inflation tail off in the second half of next year quite rapidly on account of those base effects,' he told an economic summit hosted by the Institute of Chartered Accountants in England and Wales.
Yet other factors could also come into play. In Europe inflation has been rising chiefly due to soaring energy prices, and in America a dwindling workforce – as older employees quit – is a key driver of price pressures.
In the UK, Pill said, both are happening. 'There is a sense in which the UK has had the worst of both worlds,' he added.
Domestic pressures in the UK could mean that inflation persists even after gas prices fade.
Pill said the Bank of England was focusing on whether a 'more self-sustaining inflationary psychology' was taking hold, in which wages and other costs rise.
That could mean inflation 'perpetuates itself even as the initial impulse for inflation that came from higher energy prices drops out of the annual inflation rate'.
Pill also pointed to the impact of Brexit on prices – both because of the loss of free movement of workers and because it has created difficulties for European companies trading into the UK, thus reducing competition.
In the eurozone, figures yesterday showed inflation fell more than expected, from 10.6 per cent to 10 per cent in October, yet the headline figure disguised troubling underlying data.
The fall was mainly due to an easing in energy inflation but food prices are still accelerating. A 'core' measure of inflation, stripping out food and gas prices, rose from 6.4 per cent to 6.6 per cent.
Central bankers on both sides of the Atlantic raised hopes the battle against inflation is being won – but warned it was far from over.
Bank of England chief economist Huw Pill said inflation was set to fall 'quite rapidly' in the UK next year as gas prices ease.
And US Federal Reserve chairman Jerome Powell said the central bank could 'moderate the pace' of interest rate rises as soon as this month.
The comments came as EU figures showed inflation in the eurozone dropped from 10.6 per cent in October to 10 per cent in November – a welcome sign that the worst of the cost of living squeeze may be starting to ease.
Central bankers around the world have been aggressively raising interest rates to fight rampant inflation.
In the UK, rates have risen from 0.1 per cent to 3 per cent since last December, and are set to rise again before Christmas. But despite the sharp increase in the cost of borrowing, inflation is at a 41-year high of 11.1 per cent.
Work out how much your mortgage costs could rise by with our interest rate rise calculator.
While Pill raised hopes that inflation will finally start to fall next year, he said the Bank was 'vigilant' against domestic pressures that could conspire to keep it going. 'We have to be on our guard,' he said.
Powell gave his strongest signal yet that the Fed could ease off. 'The time for moderating the pace of rate increases may come as soon as the December meeting,' he added.
Yet Powell also reiterated the determination to press on with hikes 'until the job is done'.
With fears mounting that the UK economy is heading into recession, UK business leaders are the gloomiest they have been about the country's prospects than at any time since the height of the pandemic, according to a new poll by the Institute of Directors.
Yet the hope of the Bank of England is that by next year gas prices will stabilise 'and then slowly begin to come off,' said Pill.
'We are expecting to see headline inflation tail off in the second half of next year quite rapidly on account of those base effects,' he told an economic summit hosted by the Institute of Chartered Accountants in England and Wales.
Yet other factors could also come into play. In Europe inflation has been rising chiefly due to soaring energy prices, and in America a dwindling workforce – as older employees quit – is a key driver of price pressures.
In the UK, Pill said, both are happening. 'There is a sense in which the UK has had the worst of both worlds,' he added.
Domestic pressures in the UK could mean that inflation persists even after gas prices fade.
Pill said the Bank of England was focusing on whether a 'more self-sustaining inflationary psychology' was taking hold, in which wages and other costs rise.
That could mean inflation 'perpetuates itself even as the initial impulse for inflation that came from higher energy prices drops out of the annual inflation rate'.
Pill also pointed to the impact of Brexit on prices – both because of the loss of free movement of workers and because it has created difficulties for European companies trading into the UK, thus reducing competition.
In the eurozone, figures yesterday showed inflation fell more than expected, from 10.6 per cent to 10 per cent in October, yet the headline figure disguised troubling underlying data.
The fall was mainly due to an easing in energy inflation but food prices are still accelerating. A 'core' measure of inflation, stripping out food and gas prices, rose from 6.4 per cent to 6.6 per cent.
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